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The Battle Over Tariff 8, Part 2: The Recording Industry’s Surprising Opposition to Songwriter, Composer and Music Publisher Streaming Royalties

Yesterday I posted on the battle over Tariff 8, the Copyright Board of Canada’s new tariff for digital music streaming services that the media has suggested could open the door to popular foreign services migrating to Canada. Despite the initial excitement, the Canadian recording industry, led by Music Canada (formerly the Canadian Recording Industry Association) has taken aim at the decision, which its President Graham Hendersonargues:

will further imperil artists’ livelihoods, and threatens to rob them of the fruits of their labour in the new digital marketplace. And it will further undermine the business environment, undercutting the ability of labels and other music companies to make future investments in Canadian talent.

As noted in the post, Re:Sound, the collective responsible for the tariff, has filed for judicial review of the decision and Music Canada is urging its supporters to “like” its Facebook protest page, which it says will help win the fight.

There are two things that make the campaign against the decision particularly striking, however: the industry’s failure to mention to that Tariff 8 is only one of several payments made for music streaming and its opposition to those other payments.

First, the recording industry is seemingly loath to mention that Tariff 8 is only a part of the payments that are made by Internet music streaming companies to rights holders, including performers, songwriters, composers, music publishers, and record labels. As the Board itself notes, the Tariff 8 decision focuses on a limited number of rights that may be triggered by an online music service. It states:

Streaming music over the Internet can involve as many as six rights or sets of rights. These proceedings only concern the equitable remuneration to which performers and makers are entitled when a published sound recording of a musical work is communicated to the public by telecommunication. These two rights always trigger a single payment for any type of sound recording; in the case of sound recordings of musical works, that payment is always made to a collective society authorized by the Board to collect it. Re:Sound administers these rights for the vast majority of eligible performers and makers.

The following exclusive rights are not at play in these proceedings: the right to communicate a musical work to the public by telecommunication; the right to reproduce a musical work; the right to reproduce a sound recording; the right to reproduce any reproduction of an authorized fixation of a performer’s performance for a purpose other than that for which the authorization was given; the rights granted, on November 7, 2012, to Canadian performers and makers over the communication resulting from making available a sound recording to the public.

The Copyright Board established tariffs in 2012 for several of these other rights with SOCAN and CMRRA/SODRAC (CSI). Those tariffs will ensure that music streaming fees go far beyond just Tariff 8.

Second, despite the revenues to be generated by the other tariffs, the recording industry has either opposed or dismissed those royalties, which are provided to songwriters, composers, and music publishers. For example, CRIA intervened in SOCAN and CSI tariff proceeding, arguing its statement of case that the online music tariff proposals were “grossly excessive.”

Rather than standing together as it now suggests, it argued that it did not think that “composers and publishers should share in any increase in profit in the market since, unlike the Objectors [CRIA], they made no investment and took no risk in developing the online market.” CRIA also argued that there should be no minimum royalties since that might harm the development of new services:

CRIA submits that minimum fees are not only unjustified for users who generate revenues but are particularly inappropriate for the online distribution of music, where new legitimate online music services attempting to establish themselves in the market face “competition” from free unauthorized peer-to-peer networks.

In addition, CRIA emphasized the need to limit revenues by excluding non-compensable activities. It stated:

the revenue base must be defined so as to exclude any revenue generated by activities that do not trigger any liability under the Tariff. This would include: (i) all downloading or streaming by end-users not located within Canada; (ii) downloading or streaming resulting from promotional use; and (iii) downloading or streaming of music that is not within the Collectives’ repertoire.

It is noteworthy that the Copyright Board does precisely that in the Tariff 8 decision by accounting for activities that do not trigger liability under that tariff, yet now CRIA argues that the tariff is too low.

In fact, not only did CRIA argue for lower payments in the SOCAN and CSI proceeding, but Re:Sound (whose Vice-Chair is Graham Henderson) continued to dismiss their tariffs in its statement of case for Tariff 8. It argued that the evidence was incomplete in setting those rates, that the market had changed, and that a rate structure based on a percentage of revenue was unreliable. Indeed, Re:Sound argued that it had “grave concerns” about a tariff structure based on a percentage of revenue.

The Copyright Board granted Re:Sound its wish: the tariff is not based on a percentage of revenue despite the fact that that approach would have given greater business certainty to new entrants and allowed performers and labels to directly benefit as those businesses grow. Instead, it received a per-play rate lower than it wanted, leading to its public relations blitz against the decision. While many labels have chimed in, SOCAN has unsurprisingly said little, other than releasing a statement that it awaits an updated tariff of its own and that:

SOCAN has proposed a percentage of revenue rate of 8.6 percent. SOCAN will be monitoring the Re:Sound application for judicial review closely as it advances through the court process.

The collective refrained from noting the opposition from the recording industry when songwriters and music publishers seek to be paid, but the public record speaks for itself.

Michael Geist holds the Canada Research Chair in Internet and E-commerce Law at the University of Ottawa, Faculty of Law. He can reached at www.michaelgeist.ca.

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